Long-term gains

The fund has outperformed both the Sensex and the category-average for longer periods of up to 10 years.

HDFC Long Term Advantage Fund, earlier known as HDFC Tax Plan 2000, was launched in January 2001. The fund had average assets under management (AUM) worth Rs 884 crore, at the end of the September quarter.

Investment in this fund, categorised as an equity-linked savings scheme (ELSS), is eligible for deduction (up to Rs 1 lakh) under Section 80C of the Income Tax Act. ELSS comes with a lock-in period of three years and serves a dual purpose. One, it offers equity market exposure and two, it saves tax. However, it should be noted that according to the draft new Direct Taxes Code (DTC), fresh investments made in ELSS may not be eligible for deduction under Section 80C after April 1, 2012. This remains subject to parliamentary approval.

The product has been awarded CRISIL Fund Rank 2 (in the top 30 percentiles of the peer group) for six quarters (June 10-September 11), exhibiting consistency in performance. Chirag Setalvad has been managing the fund since April 2007.

Performance
The fund has outperformed both the benchmark (BSE Sensex) and the category-average for longer time frames of 3, 5, 7 and 10 years, thereby maintaining its objective of capital appreciation over the long term. For a three-year period, the fund has delivered annualised returns of 30 per cent vis-a-vis 23 per cent and 25 per cent for the benchmark and category, respectively. Over a 10-year period, it gave annualised returns of 28 per cent as against 17 per cent and 22 per cent by the benchmark and category, respectively, delivering excess return of 11 per cent and six per cent.

Further, an investment of Rs 1,000 at the inception of the fund (January 2001) would have appreciated to Rs 12,345 (over 12 times) as on December 5. The same amount invested in the benchmark and category would have grown to Rs 4,182 and Rs 6,177, respectively.

Risk
Higher returns than the benchmark and the category have been delivered with a lower volatility. The average monthly volatility for the fund over a five-year period was 24.5 per cent vis-à-vis 27.5 per cent and 27.4 per cent for the category and benchmark, respectively.

Portfolio analysis
The fund has been witness to multiple market cycles since its inception in 2001. Compared to others in the category, it has a higher equity exposure. The fund’s equity exposure averaged 96 per cent over the past three years, as against 92 per cent for the category. Even during the volatile past year, it has remained almost fully invested at 97 per cent as compared to 94 per cent for the category.

The fund has retained 16 stocks in its portfolio for the past three years, of which 11 have outperformed the benchmark. These include

Balkrishna Industries, TCS, GlaxoSmithKline Consumer Healthcare, Biocon and Pidilite Industries. For the past three years, banks have been its most preferred sector, with an average exposure of 13 per cent over this period.

Compared to the category, the fund has been overweight on software, consumer non-durables, pharmaceutical and auto ancillaries. It has been underweight on banks and software compared to the benchmark. Higher exposure to the pharmaceutical sector over the past year has augured well for it, as the sector has given lower negative returns of seven per cent as compared to negative returns of 16 per cent by the BSE Sensex, negative 26 per cent by the CNX Bank Index and negative 11 per cent by the CNX IT Sector Index.

CRISIL Research